10 Financial Breaks Single People Wished They Could Get from Uncle Sam
There are unique benefits that married people can take advantage of, as long as you know what you are eligible for.
If you plan on tying the knot in the near future, or are married but unsure of which financial breaks you and your spouse qualify for, take a look at the 11 ways you could potentially save money.
1. Potentially lower tax brackets
For spouses that have significantly different salaries, the lower-earning spouse can pull the bread-winning spouse into a lower tax bracket, which means an overall reduction in their taxes.
2. An increased standard deduction
The IRS gives all taxpayers an automatic deduction from their taxable income. In 2020, the deduction for single taxpayers was $12,400, and for married couples filing jointly, the deduction was $24,800 off the overall taxable household income.
3. Diminished tax burden
There are many instances in which a spouse can reap tax benefits. For instance, if one spouse is losing money through a business, the other spouse can use the loss as a tax write-off. According to CPA Kevin O'Brien, the same is true of high medical expenses.
4. Starting a family
In 2017, each member of a parental household was given a free personal exemption of $4,050 (including children). However, the personal exemption was eliminated for the the 2018 tax year because of the tax plan passed in 2017. That means you cannot claim any personal exemptions. On top of that, the Child Tax Credit deduction is $2,000 for each child (given that the spouses made under $400,000 annually if filing jointly). Low income earners also received an increased Earned Income Tax Credit with each child born, and in 2020, parents who earned $56,844 with three children or more earned an EITC of $6,660.
5. No federal estate tax
Part of the buildup that bolstered the argument for the repeal of DOMA in 2013 was the fury over New York widower Edith Windsor's $363,000 (a 35 percent tax) charge by the IRS on the estate she shared with her deceased spouse of more than 40 years. Though most couples will not have estates valued over $5.2 million, those who do, or inherit sizable assets can transfer every cent of it to their spouse and not have to pay any federal estate tax, as outlined by the Marital Deduction.
6. IRA break
If you have an IRA, you can make up to $6,000 in tax-deductible contributions annually. Though IRAs are individual retirement accounts, if you meet certain conditions you are allowed to pay money into your spouse's IRA, which means you may be able to deduct up to $12,000 on your joint tax return.
7. Potential protection from creditors
According to MSFS/CFP Leonard P. Raskin, "If assets are titled 'Tenants by the Entirety', the assets of each are protected from individual creditors. Additionally, depending on the state law, various other assets; life insurance cash values and proceeds may be exempt from both the insured or the spouses creditors."
8. Expenses may become more affordable.
"Cost of living tends to decrease when you share a home," says Katie Strokes, CFP. "One roof is cheaper than two." Typically, both partners combine their monetary assets which means their consolidated lifestyle is more affordable.
9. You can flip a house for profit.
If you invest in a property short-term in order to flip it for a profit, the IRS charges you a 20 percent capital gains tax when you make the sale. However, there are two tests you can pass in order for your property to qualify as a long-term investment. If you lived in the home as your primary dwelling for at least two years, or had it in your possession for at least two years, you pass under the IRA's radar.
A single person can net up to $250,000 in profit from the sale of that property, but married couples can make up to $500,000 without paying any capital gains tax! (Be sure to check on qualifying rules to see if you're eligible.)
MyBankTracker reader, Holly Wolf, said her spouse is self-employed but is under her health benefits, which is a cost-effective alternative to paying for it on his own. Additionally, the couple makes sure work-related expenses don't slip through their fingers, by accounting for expenses such as a cell phone, work-related vehicle expenses, clothing (he is a construction worker), etc.
It's important to acknowledge that getting married doesn't automatically give you a financial boost. However, if you and your spouse work together, you can benefit from your marriage. According to Stokes, discussing a financial plan prior to marriage is crucial in starting your union off on a solid foundation. "Avoid getting 'locked in' to what you think may work before the marriage. Be open to change. Don't let one person handle all of the money -- decisions, bill paying, budgeting."
If marriage is in the works for you at any point down the road, seeking financial advice from an advisor can ensure you avoid any unpleasant surprises and pitfalls along the way.
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